Arch Pharmalabs becomes a leading API maker

Sixteen years ago, Ajit Kamath was an eager 22-year old who couldn���t wait to make his mark on the world. His fortunes may have taken him down a meandering road, but today, the 38-year old chairman and managing director of Arch Pharmalabs says he would change nothing about the past.

Kamath started his first venture, Arch Financial Services (AFS), back in 1992 in Mumbai when all he had was Rs 5,000 to invest, and a belief that financial services would be the next big opportunity. AFS was a trade finance company that made tidy profits by discounting trade bills. For six years, the company continued to do well. However, in 1998, after the RBI eased norms governing entry of foreign banks into India, the company���s financial fortunes became uncertain. Kamath recalls, ���The canvas was shrinking, and so were profits. Unlike the multinational banks, we didn���t have access to unlimited capital. So we decided that the best thing to do would be to shut down operations and look for an alternate business to get into.���

Along with Manoj Jain, a former classmate who had joined the firm in 1994, Kamath began scouting for opportunities in the manufacturing sector. That was when they heard about Merven Pharmaceuticals, an ailing manufacturer of intermediates that had filed for protection from creditors under the Board for Industrial and Financial Reconstruction (BIFR). ���Before it shut down, AFS���s clientele comprised largely of pharma companies. Therefore, we knew something about the sector and that prompted us to take over Merven,��� Kamath says. The duo joined hands with yet another partner, Rajendra Kaimal, pooled in six crores and acquired Merven in 1998, renaming it Arch Pharmalabs.

���The company was saddled with a lot of debt, though its business model was very sound. We brought in the money it urgently needed and luckily, were able to revive it,��� Kamath recalls. Some of the key problems the partners had to deal with included paying off existing creditors and turning the company around to make it net worth positive. It took them three years, but they managed to bring order to the proceedings. In the initial five years, Arch Pharmalabs focused on one main offering: intermediates for isoxazoles penicillins, which it concentrated on selling to overseas markets. ���The ratio of Merven���s domestic clients to foreign clients was 30:70. We reversed that figure,��� Kamath smiles. The firm also ramped up production from 15 tonnes a month to 120 tonnes to take advantage of bulk orders.

It was in 2003 that the partners decided to step up growth and expand their product line. From that year onwards, Arch Pharmalabs began manufacturing active pharmaceutical intermediates (APIs) for drugs used in cardio-vascular and diabetic ailments and malaria, among others. Between then and now, Arch acquired six companies in India, including key vendors, which has helped it set up manufacturing locations at ten facilities across the country. In 2006, it got funded by Swiss Tec, and later by ICICI Ventures and IL&FS. All in all, after five rounds of funding, 58% of the company���s equity is now held by the three PEs who invested in it.

The names of Arch���s clients are a who���s who of the pharma world: Cipla, Sandoz, Ranbaxy...the list is a long one. And with a turnover of Rs 600 crore in the last fiscal, Arch has already established itself in the league of high-fliers. ���When we took over Merven, we were just one among 7,000 other similar companies. Today, we are in the top five in India and hope to be in the top three in two years��� time,��� Kamath says. A large driver of revenues will be its two state-of-the-art R&D centres started in 2006 in Mumbai, which have 200 scientists churning out data and reports for clients worldwide. Kamath forecasts, ���We will be keenly investing in R&D, as we believe that contract research will explode in the country- provided the right kind of people are available.���